Deal-Making Charges Overshadow West Bank Housing Plans

By SERGE SCHMEMANN

Published: February 28, 1997

JERUSALEM, Feb. 27—
The threatened storm over the decision to build a new Jewish neighborhood in East Jerusalem appeared today to have receded, at least for now, but new leaks in the investigation into influence-peddling in the Government raised dark new clouds on Prime Minister Benjamin Netanyahu's horizon.

Reactions to the Government's decision to build Har Homa, thousands of units of housing for Jews on a tract in East Jerusalem, were muted. Reasons seemed to include the fact that actual construction was not imminent, and that Yasir Arafat, the Palestinian leader, was off to Washington.

Arriving in the West Bank town of Nablus for meetings, Mr. Arafat denounced the decision in what sounded like stock terms, as a violation of existing agreements and United Nations resolutions. He made no call for demonstrations or other action.

Still, hundreds of Palestinians carrying flags and banners marched toward the site of the planned Jewish neighborhood, holding a peaceful demonstration nearby after they were prevented from reaching the hill by Israeli soldiers. Organizers from Mr. Arafat's Fatah movement urged youths not to hurl stones or confront the soldiers.

Aides to Mr. Arafat said he did not want any disturbances to overshadow his visit to Washington next week. President Clinton extended separate invitations to Mr. Arafat and Mr. Netanyahu in December as an incentive to reach agreement on an Israeli pullback from the West Bank city of Hebron, which they did soon after. Mr. Netanyahu made his trip two weeks ago.

There were also reports that Mr. Netanyahu had privately pledged to increase the amount of land he would hand over to the Palestinians next week if there were no disturbances. Under the agreement reached between Mr. Netanyahu and Mr. Arafat last month, Israel is to make three additional transfers of land by mid-1998, the first by next Thursday.

For Mr. Netanyahu, however, the respite was not long. Israel Radio reported today that police investigating allegations of a high-level political deal behind the short-lived appointment of Roni Bar-On, a lawyer, as Attorney General last month were considering a recommendation of indictments against the Director General of the Prime Minister's office, the Justice Minister and head of the religious Shas party. The radio said there was a possibility that Mr. Netanyahu himself could be cited.

At the same time, the report, which appeared to have originated with a senior police official, said there was no evidence to support the allegation that a Hebron vote was part of any deal. The report suggested that a likely charge against the officials might be breach of trust.

State Attorney Edna Arbel, to whom the police are supposed to report their findings, quickly declared that no decisions had been made, and none were expected for at least a week.

Of those named in the radio report, Avigdor Lieberman, Director General of Mr. Netanyahu's office, is considered the Prime Minister's most powerful aide. Justice Minister Tzahi Hanegbi has made clear he will not serve as scapegoat.

The basic allegation is that Aryeh Deri, the leader of the Shas party and a former Interior Minister, pushed for the appointment of Mr. Bar-On to secure a plea bargain in a separate corruption trial, and that he used the Shas vote on Hebron as his lever.

Though Israeli politics are notoriously rough, the investigation is a novelty. The closest precedent is the resignation of Yitzhak Rabin as Prime Minister in 1977 after it was revealed that his wife held illegal bank accounts in Washington. Mr. Rabin was returned to office in 1992 and was assassinated in 1995.

If the investigation concludes without allegations against Mr. Netanyahu, the aftermath is likely to depend to a large degree on public reaction. Despite daily headlines, there have been no indications of major public indignation. An opinion poll by the daily newspaper Haaretz concluded that half the population would be ''indifferent'' should the investigation turn up irregularities.

One reason for the low interest is probably the absence of consequences from the affair. Mr. Deri has already been on trial for three years, while Mr. Bar-On was Attorney General for only 12 hours before he resigned under a storm of charges from jurists that he was unqualified for the office.

Few Israelis seriously believe that the Government will fall. The most common expectation is that Mr. Lieberman, a rough and bearish man known behind his back as Rasputin, will be forced out.

Photo: Near a hill in East Jerusalem where Israel plans to build new housing for Jews, a Palestinian demonstrator held an olive branch yesterday. (Agence France-Presse)